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Nadeau offers guidance on refusal to deal

September 19, 2011|Written By Julius Melnitzer

Section 75 of the Competition Act allows parties that a supplier refuses to deal with a right of private access to the Competition Tribunal. On such an application, the Competition Bureau can, under certain circumstances, order a supplier to sell its product to the complainant.

'While the case does clarify certain legal issues, it does not represent a sea change in the jurisprudence,’ says Eliot Kolers.

But the jurisprudence on s. 75 is sparse.

“The difficulty is that there are not a lot of private applications to the tribunal, and even fewer that make their way to the Federal Court of Appeal,” says Eliot Kolers of Stikeman Elliott LLP’s Toronto office.

In its decision in June, the court shed considerable light on the meaning of key terms in the legislation, including “ample supply,” “as a result of insufficient competition,” “usual trade terms,” and “adverse impact on competition.”

The terms are all key components in determining whether an applicant has satisfied the five conditions required for a s. 75 order:

• The applicant was substantially affected because of its inability to obtain adequate supplies in the market on usual trade terms.

• The inability was due to insufficient competition in the market.

• It was willing to meet the usual terms of trade.

• The product was available in ample supply.

• The refusal to deal was having an adverse effect on competition in the relevant market.

The case arose in January 2007 when Westco, a highly integrated chicken producer whose corporate group controlled 66 per cent of New Brunswick’s chicken production quota, advised Nadeau that it was interested in acquiring an interest in its processing plant — the only one in the province — so that it could fully integrate its operations. Nadeau was a subsidiary of one of Canada’s largest chicken processors.

In March 2008, Westco gave notice that it would cease supplying Nadeau with chickens.

Nadeau replied with an application under s. 75 seeking to force Westco to continue to sell it all of its live chicken production despite the absence of a contractual obligation to do so.

As it turned out, Westco had decided to slaughter the chickens it raised itself.

The tribunal refused to make the s. 75 order, a decision the federal appeal court upheld.

Although the court agreed that the inability to obtain supplies would substantially affect Nadeau’s business, it concluded that its difficulty didn’t result from insufficient competition but rather was due to the restrictions imposed by Canada’s complex regulatory regime that limited live-chicken production in the country.

The court made a number of other rulings as well:

• Ample supply refers to situations where suppliers weren’t obliged to choose between serving new customers and providing historic quantities to existing ones.

• A refusal to deal couldn’t be said to have an adverse effect on a market unless the applicant demonstrated that the supplier’s market power would grow as a result of the refusal.

• The relevant market was the downstream market where the applicant sold its product and not the one where it obtained supplies.

The decision is an important one for Canadian businesses, says Martha Healey of Norton Rose OR LLP’s Ottawa office.

“It underscores the fact that even if a customer’s business may be substantially affected by a refusal to deal, the tribunal will not make an order forcing a supplier to accept the customer unless the customer demonstrates a causal relationship between the refusal to deal and insufficient competition, the presence of the product in ample supply, and the adverse effect of competition in a market,” says Healey, who with colleagues Denis Gascon, Eric Lefebvre, and Alexandre Bourbonnais represented Westco.

Arguably, however, lawyers should approach Nadeau with caution.

“It’s important to remember that the case dealt with a regulated industry, which made for a unique fact situation, and that the appeal was limited to questions of law as the appellant did not seek leave to appeal issues of fact,” says Kolers.

“While the case does clarify certain legal issues, it does not represent a sea change in the jurisprudence.”

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